I have growing concerns regarding the current state of the US Dollar and its potential to trigger a global recession. The current administration has openly prioritized a weak dollar policy, evidenced by a 15% depreciation against the Euro since the term began. This is compounded by political pressure on the Federal Reserve to lower interest rates to 1% and rising geopolitical friction with the EU, which risks a selloff of US Treasuries.
My thesis suggests two likely, yet negative, outcomes:
**The Path of Non-Intervention** If the dollar continues to devalue unchecked, we risk a surge in commodity prices (already underway), leading to cost-push inflation. While oil supply may mitigate some shocks, a severe spike could threaten the solvency of import-dependent nations. Furthermore, this dynamic encourages "currency wars," where trading partners devalue their own currencies to remain competitive. This erosion of trust could destroy international trade, ultimately leading to stagflation and recession.
**The Path of Delayed Intervention** If the US government eventually intervenes, it will likely be a reactive measure taken too late. This would force the Federal Reserve to enact drastic measures, similar to the "Volcker Shock" hiking rates aggressively to curb inflation. Alternatively, they might attempt to absorb massive amounts of liquidity. Both approaches would freeze capital expenditure and tighten the economy so severely that a crisis becomes inevitable.
I'm struggling to see how the current narrative of the administration is avoiding to change their path for the Dollar, I understand how a small devaluation makes you more competitive when it comes to international trade, I feel we have reached the point where the constant weakening of the Dollar against all other currencies stops favoring the US and just starts destroying the global economy.
I am seeking feedback on this assessment: Is this thesis economically sound, or am I overestimating the risks? I basically want to hear the rest of the people so I can atleast start seeing other points of views on how the US's narrative might make sense.